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Do These Small-Cap Insiders Know Something You Don't?

A regular scan of
Securities and Exchange Commission (SEC)
filings by corporate insiders can point the way to great investment
opportunities. These officers and directors use their own funds to
snap up their company's stock on the open
market
. You'll often find recognizable names, underscoring
bullish
opinions you may already have. For example, insiders have recently
acquired
shares
at firms such as
Chesapeake Energy (NYSE:
CHK
)
,
Ford Motor Co. (NYSE:
F
)
,
Whirlpool (NYSE:
WHR
)
and
Family Dollar Stores (NYSE:
FDO
)
.

Yet you'll also come across companies you've never heard of, the
ones that toil in anonymity until they appear on various stock
screens. With this in mind, I've taken a look at several small
stocks that recently saw significant insider buying and found three
companies that appear to have especially strong appeal. (Special
thanks to
insiderinsights.com
, which provides me with the
insider information
used in this and other insider-focused stories).

Here they are…

1. Biosante Pharmaceuticals (Nasdaq:
BPAX
)
Market cap.: $273 million
Three Insiders first started acquiring a collective 17,000 shares
of this testosterone drug-developer back in January when shares
traded under $2. Investors grew increasingly excited about the
company's prospects, as several drugs moved closer to getting final
Food and Drug Administration (FDA) approval. Shares moved up toward
the $4 mark this summer, but the sharp market drop crushed
virtually every biotech stock, including Biosante. Biotech
companies tend to elicit nervousness from investors, because these
firms may find it harder to raise more money for their research and
development efforts during a market slowdown.

Undeterred, Biosante's insiders again bought a collective 117,000
shares in August at an average price of about $2.30. Just this week
(Nov. 14), another insider made a modest additional purchase of
3,000 shares. Why are these insiders so enthused? Because the
company's LibiGel, which among other uses, treats female sexual
dysfunction, could be approved as soon as early 2012. Biosante is
also partnering with
Teva Pharmaceuticals (Nasdaq:
TEVA
)
to secure FDA approval a testosterone gel for the treatment of male
patients with Hypogonadism, a hormone dysfunction in the sex
glands. Teva, which is responsible for all regulatory and marketing
activities for the drug, will go before the FDA in the middle of
February. It won't be long before we see whether this bullish
insider activity pays off.

Toiling in their shadow is Canada-based MDC Partners, which is
growing at a very rapid pace, thanks to an emphasis on digital
advertising. The company's online campaigns, which augment
traditional print and broadcast ad campaigns for clients, have
helped create industry buzz -- and poach rivals' clients.

MDC's sales have shot up from $400 million in 2006 to $700 million
in 2010, and analysts say this figure may top $1 billion by 2012.
Still, this stock remains fairly unloved. It hit almost $16 a share
in 2004 and recently traded hands at about $14 per share. This may
explain why insiders have been buying stock for nearly two years
straight. They bought 51,000 shares in August (at an average price
of $16), 5,000 shares in September (at about $14) and, earlier this
month, four different insiders combined to buy 30,000 shares at an
average price of roughly $14.50.

Where's the stock headed? I figure this high-growth
business model
is worth at least eight times projected 2012
EBITDA
of about $125 million, which would put the stock at $25 a share.
That's an incredible potential 80% gain.

3. Derma Sciences (Nasdaq:
DSCI
)
Market cap.: $86 million
This is an intriguing health care play, supported by more than $1
million of insider buying by a small group during the past two
months. Derma Sciences generates roughly $60 million in annual
sales by selling a range of wound-dressing products such as
private-label bandages, gauze-based dressings and advanced
wound-care products that have micro-nutrients to aid in
healing.

Management is taking the bold step of adding a biotech twist to
the business model. Derma's DSC127 drug is a patented formulation
that can accelerate healing and reduce scar formation. The product
has already been through Phase II clinical testing, and after an
upcoming meeting with the FDA, will proceed to Phase III trials in
the spring. The potential market opportunity is well above the
company's $85 million
market value
. What's the upside? It's hard to quantify, but further clinical
testing progress can only help put this stock onto more radars.

Risks to Consider:
Insiders don't always have great timing, so their purchases can
sometimes take place well in advance of any actual share-price
movement.

Action to Take -->
Heavy insider buying underscores the fact that these stocks are
under-appreciated, or at least not fully understood by most
investors. They may be off most investors' radars right now, but
forward momentum for each of these business models could make them
household names in 2012. Aggressive investors may want to take a
small stake in any of these names after further
due diligence
.

-- David Sterman

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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